Wednesday, December 12, 2012

Ben Moved the Goalpost.

And that is why it is so difficult to short the markets in this environment.

Although it does not change anything in terms of cycles, we have to respect the liquidity flow and the disruption it causes in the short term. That was the reason I closed my short positions in Crude and Silver, although I still think both will correct more. I expect crude to test its support at $ 80 and silver to test $ 30 by the end of the year. But with the additional bond purchase Bernanke again broke the back of US Dollar and that does not work well for our short trade. My thinking was it is better to be safe than sorry. Better give up some profit now instead of bigger loss later. I might enter the short trade again after things settle down for a day or two and price of crude and silver drops down a bit more. Protection of capital is more important in this crazy environment.

It is no good to trade or invest based on ideology or belief. As I have shown in that chart of yesterday, while there has been much discussion about cliff and doom, institutions have been buying. I expect one good shake down soon before we get the chance to go long again, but time is running out.

I am not going to front run because SPX is up six days in a row and statistically, tomorrow should be red. I would rather wait to see SPX close below 1410 convincingly. Everything says that we are close to an intermediate term top but only price action can confirm that and we better wait for confirmation.